How Much Does Outsourced Payroll Cost? A Breakdown of Pricing
As a business owner, payroll is one of your most important functions. Not only does timely and accurate payroll enhance employee satisfaction, it also keeps you in compliance and fine-free. But there’s a lot to get right, from required employee information to tax withholdings.
Payroll may be easy to handle on your own if you’re a small company with just one or a handful of employees and have very simple needs. However, no matter your size, it can quickly get more complicated as you grow, have workers in multiple states, or become subject to the legislative requirements regarding payroll, HR, and benefits that routinely impact employers.
Since 2003, Complete Payroll Solutions has been helping businesses of all sizes and in all industries streamline their payroll processes with automated solutions for greater precision and a happier, more productive team.
One of the questions we get most often from companies is: How much does it cost to outsource payroll? The short answer? It’s surprisingly affordable.
While pricing depends on a number of factors, you can generally expect to pay about $150-$200 per employee per year. Here, we’ll breakdown what’s behind this figure and what can drive it up or down to help you find a solution that fits within your budget, no matter who you decide to partner with.
How is Payroll Pricing Structured?
While there are many different ways that payroll companies charge customers for their services, there are three common approaches you’ll likely see. For each, we’ll calculate the average costs for a company with 10 employees who pays bi-weekly.
Charging fees per pay frequency is the predominant way payroll companies charge for their services. That means however often you pay employees (weekly, bi-weekly, semi-monthly or monthly), you’ll be charged a base fee and a charge for each employee you pay.
This approach is good for businesses with fairly predictable payrolls that don’t have a lot of changes or extra payroll runs. If this sounds like you, you can expect to see individual employee charges that run from $1.50 to $3 per employee and base fees per pay period between $20 and $40. So that means you would pay about $140 a month based on a fee of $3 per check and a base fee of $35.
Per Employee Per Month (PEPM)
This pricing structure is increasing in popularity because it often results in savings for employers. Rather than paying fees each payroll, with PEPM, you can run unlimited payrolls and just pay one monthly base fee plus a fixed rate for the number of employees you pay each month.
PEPM is a good choice for companies who may have additional payroll runs for things like bonuses or commissions. With this option, you would pay a base fee of about $75 and around $6 per employee, making your total charge for the month roughly $135 plus shipping fees for the checks.
In some situations, especially with Do-It-Yourself (DIY) online solutions, a payroll company will charge a fixed rate per month that covers a set number of employees or a range such as $65 for 1-9 workers, $125 for 10-20 and so on.
That’s the only fee you’re charged for payroll processing, no matter how frequently you pay your employees each month. Be aware that some companies may cap the number of employees you’ll be able to process payroll for so this may not be an option for every business. But if you are relatively small and your employee count is pretty steady, this can be a simpler, less expensive approach to outsourcing payroll.
In most cases, the fee structures discussed above primarily cover payroll processing only. There are additional services that are helpful for business owners, but not covered in these fees. We’ll discuss those services next.
What Factors Drive Up the Price?
When looking at payroll costs, it’s really important to understand exactly what’s included. This allows you to make accurate comparisons between companies and have a clear picture of what you’ll be paying.
In many cases, the quoted costs are just for processing payroll. Any ancillary products or services you want may be an additional cost. Think of it like an a la carte menu at a restaurant. And this is where things can quickly add up.
Some common services business opt to include with payroll include:
- Tax filing (the price of which can increase based on the number of states you’re operating in)
- General ledger interface
- Employee pay options like direct deposit, pay cards, and paper checks
- Courier and delivery charges
- Check stuffing and sealing
- Customized file transfers for 401(k) and workers’ compensation reporting
- Quarterly and year-end reporting
- W-2/1099 and 1095 processing
- Affordable Care Act (ACA) reporting
Some payroll companies may include one or more of these services in their base fee. For example, here at Complete Payroll Services, we include tax filing, employee pay options, check stuffing and sealing, quarterly and year-end reporting and customized file transfers as part of our standard base fee. But most often, you have to pay a separate fee for each add-on or buy a package that includes several popular services.
Depending on what services you choose to outsource and which you handle yourself, these extras can add up to hundreds of dollars and increase your bill for total payroll costs. The key here is to ask what is and isn’t included in the price quote to eliminate any surprises.
You may also pay more if you choose to add other solutions that payroll companies often provide to increase the efficiency of your HR functions like:
- Time and attendance
- Applicant tracking and recruitment
- Benefit enrollment
- Performance management
Usually, each of these solutions will have a unique and separate fee structure that you’ll pay in addition to your payroll processing fees.
In most cases, you can cancel your service with a payroll provider at any time and with very little notice. So if the costs end up being more than you expected or can afford, you can always make a change so you’re not locked into these expenses over the long term.
Are There Ways to Save on Outsourcing?
Since there’s so much variability in pricing, you may be wondering if there are ways you can save on payroll costs. The quest for less expensive options has fueled the rise in popularity of Do-It-Yourself (DIY) online payroll software. These DIY solutions can cost up to 50% less on a PEPM basis.
The reason for the savings is that you as the employer take on more responsibility in the payroll process such as employee maintenance, payroll detail entry and report production. These solutions are also paperless so by paying your employees with alternate methods such as direct deposit, you don’t incur costs for things like check delivery.
For many businesses, the DIY option can be an excellent way to save as long as you’re comfortable with web- or mobile-based systems and limited interaction with your provider. It’s also convenient if your payroll company’s hours of operation make it challenging for you to deal with them during normal business hours and you’d prefer to handle payroll before or after they are open.
But it’s also important to understand that there are some things you’ll be giving up with this approach.
For example, if you want to have some degree of support or assistance, many software solutions don’t offer that as part of the service. So if you want a relationship with your vendor or an option for call in/call out service, you may be better off with a payroll company that allows you to just report your employees’ hours and they handle everything else.
What Will My Total Price Be?
As you can see, there are many factors that can impact the total cost of payroll processing. While the general rule of thumb is that it will cost around $150-$250 per employee per year, your total price will be based on the scope of your engagement with your vendor.
This is a relatively small price to pay compared to the risks of doing it yourself like errors, late payments, or compliance issues. In fact, with each pay run, you’re potentially costing your business more than what you’d pay for a provider.
Outsourcing your payroll comes with a lot to think about. Start your journey by learning which companies we consider to be the best regional and national payroll providers. If you think Complete Payroll Solutions is right for you, read more about our payroll packages to see which is a good fit your business.